Vacation Rental Management — A huge business that needs better software

Disclaimer: This blog post was written in 2013 when I was actively involved in the vacation rental industry. All information may be out of date. I leave this up because some people seem to find it useful.

A Real Problem From A Real Business

My wife owns a vacation rental management company in Maui. She and her peers have all experienced the same problem. At about 10-15 properties, the informal tools used to bootstrap the company aren’t sufficient to continue operating the company efficiently. The data management and routine tasks become so time consuming that additional growth becomes difficult. Managers spend multiple hours each day doing things like manually creating invoices and updating calendars in multiple places instead of focusing on the innovative and differentiated aspects of their business. Obviously these tasks should be automated by software, but the existing solutions are so bad that most of the managers we know refuse to adopt them.

The Current Market Leader

The current dominant solution in this industry is Escapia, with over 60% marketshare. Unfortunately, Escapia still feels like a product designed in 2006. It is an all-in-one proprietary solution with severe vendor lock in and poor UI design. A subset of the drawbacks to Escapia include:

• No way to click around the product before purchase
• Must talk to a sales person to sign up
• Proprietary solutions for accounting, CRM, mailing lists without the option to use industry standard alternatives
• Must enter a contractual relationship to access their API
• Enormous initial signup fee
• Difficult if not impossible to migrate to an alternative product
• Only capable of running on Internet Explorer
• Dated visual design
• Incomplete features such as a yield management tool that doesn’t consider competitor pricing

Given the above, there is a lot of risk in adopting Escapia as a vacation rental manager. Migration is very expensive and time consuming. Without the ability to try Escapia before purchasing it, you may find out that you spent thousands of dollars on a solution that doesn’t meet your business requirements. Even worse, there isn’t an easy way to revert and get back out, so you will have to go through another expensive migration if you decide that Escapia won’t work for your business.

The Root Cause

The primary problem with the existing solutions like Escapia is that they are trying to be fully integrated all-in-one solutions. This fundamentally ignores one of the major macro trends in successful software companies as articulated by Aaron Levie:

Instead of relying on a single vendor to do all their jobs, customers get the best products in each category to solve their problems.

CIOs who’ve embraced this approach simply don’t need one-stop shops for all their technology needs anymore.

Aaron cites companies like Docusign, Zendesk, and Marketo as evidence of best-of-breed products disrupting fully integrated enterprise solutions. The same trend exists in B2B startups such as Stripe, MailChimp, GitHub, and others who expose APIs and webhooks for integrating into a larger solution.

I found myself experiencing significant cognitive dissonance believing the trend toward best-of-breed while simulataneously observing that all the existing solutions are fully integrated legacy implementations. I believe part of the answer can be found in Levie’s blog post:

The key to the vertical stack was about reducing the complexity in the customer proposition of combining disparate systems, thus driving more sales, faster. However, at some point, as technology becomes good enough, we tend to see ecosystems move toward open and ‘modular’ approaches.

Software to operate a vacation rental management business combines a lot of systems including:

• Accounting
• CRM
• Customer emails
• Website hosting
• Rental calendar
• Staff task scheduling
• Yield Management (airline style price adjustments)

The cost for an individual vacation rental manager to hire a software engineer to integrate the equivalent best of breed solutions would be too expensive. Therefore, they are forced to adopt one of the monolithic solutions. These monolithic solutions are incentivized to increase vendor lockin, and in the absence of a better competitor, they can.

However, I think the second part of the quote above portends that there is an opportunity to disrupt this market:

However, at some point, as technology becomes good enough, we tend to see ecosystems move toward open and ‘modular’ approaches.

The best of breed equivalents to the components in the monolithic vacation rental management solutions are approaching “good enough”, if they aren’t there already. There are companies building cloud based solutions for most fundamental business activities including accounting, CRM, email marketing, etc. These companies are building great products with powerful APIs for integration. My hope is that someone will come and build the next generation solution using these best-of-breed components to offer a better solution for vacation rental managers. A solution where you can use the default configuration with standard integrations, or you can swap out a module, or extend functionality using supported APIs.

What does the solution look like?

There are a lot of logistics to run a property management company. Before we can design a solution, we need to understand the requirements. The following diagram represents some of the details that should be managed by software:

Overview of things that should be managed by vacation rental management software

A few key things to notice about this diagram:

1. There is a relatively small set of core data including customer information, booking dates, and payment information
2. Many things are derived from this core data including invoices, automated emails, cleaning schedules, and online calendars
3. Most of these features are not unique to property management including CRM, billing, advertising, accounting, employee scheduling, and calendar synchronization

Given the above, it should be possible to build a superior solution using an integration of best-of-breed solutions. This new solution would probably consist of a core service for the unique requirements of property management with integrations of best-of-breed solutions for standard business requirements like CRM, email marketing, analytics, etc.

To compete with the all-in-one solutions, the integration of best-of-breed products will need to have defaults that work out of the box. Then, if property managers need to modify the integration, they can do so. There are many successful examples of this default integration including MailChimp’s capability to control mailing lists from SalesForce.

Specific things I’d like to see in the next generation vacation rental management service are:

• Self-serve signup flow
• Change once, update everywhere (updates to pricing, calendars, marketing photos, etc should only have to be changed once and automatically updated everywhere)
• Use of best of breed services for things are aren’t specific to vacation rentals (CRM, email marketing, credit card processing, invoices, receipts, analytics, etc)
• An open API and webhooks for customization
• No minimum number of properties so you can use the same software as your company grows
• Ability to export your information to avoid vendor lock-in

Market Incentive

Vacation rental bookings generate $85 billion annually. Property manager commissions are between 25-50% of bookings. These property managers have a demonstrated willingness to pay high prices for tools that save time and contribute to their bottom line. Therefore, I believe there is significant wiggle room to build a huge business selling tools directly to property managers.

Additionally, as the central system of reference for vacation rentals, you will have an invaluable position and data set to enter into other parts of the travel industry. For example, you would have aggregate information for occupancy, pricing, and customer information. From this information you would have the critical mass of information to start your own listing marketplace like VRBO or AirBnB. You could also build services that enable true yield management for pricing based on the competitor pricing and occupancy in a geography. These are just two ideas of the many things you could do with a huge dataset of accurate rental property pricing, occupancy, and guest information. Any entrepreneur worth his salt can probably think of many more huge businesses that could be built around this data. Of course, building a successful property management service is a prerequisite to these opportunities, but I wanted to mention them to communicate that this could become a huge business.

Beachhead: Early Adopters

To enter this market, and compete with a dominant player like HomeAway, you will need beachhead. My recommendation is to build a tool that works for property managers with just a few properties. Existing solutions, like V12 and Escapia, have minimum property requirements, and therefore exclude early-stage property management companies.

Early stage property management companies are forced to bootstrap their companies using a home-grown combination of Excel, email, and sticky notes. When these property management companies finally get large enough to qualify for purchasing a solution like Escapia or V12, the transition is painful and time consuming. The transition requires maintaining the existing bootstrapped solution while adopting the new software, changing how you run your company to fit the expectations of the new software, and months of learning the new system. This makes adoption cost huge. Building a service without a property minimum would enable early-stage property managers to build their companies around your system. By the time they reach the 15 property minimum required by other companies, they would already be invested in your product, and unlikely to switch.

Who will it be?

From a technical implementation perspective, it would make sense for the market leader Escapia to modify their product to be more modular and open. Escapia has proprietary implementations of almost every feature a property manager would need, including trust based accounting, bulk updating of listing sites, and a centralized calendar. However, many of their features are poorly implemented including no self-serve signup, a yield management system that doesn’t consider competition, and a weak customer email marketing platform. Unfortunately, as an all-in-one solution, your choice is take it or leave it all. Technically, it would be possible to modify the Escapia software to fix all these problems. They could build an open API and webhooks that would enable you to swap out their proprietary solution with a best-of-breed equivalent. For example, you could use web hooks to trigger emails in MailChimp instead of using the Escapia email editor. Escapia could also be modified to have a self-serve signup flow and trial period. Unfortunately, my gut tells me there is almost no chance Escapia will do this. This Internet has a rich history of dominant companies resisting change until it is too late. The Escapia software was originally written in 2006, and therefore has an enormous amount of legacy code which is probably expensive to radically modify. It is unlikely that Escapia will make this huge investment while they continue to maintain dominant market share.

I expect that there will be a new startup that will disrupt the established giant. While nobody has emerged as the likely startup to do this, I see a glimmer of hope in myvr.com. They are a YCombinator company that recently entered the market. Currently, their primary features are generating a property listing page and managing advertisements on other listing sites. Soon they are releasing a centralized inbox to manage inquiries. Their current product has all the UI design characteristics that you expect from a modern web company including a self-serve signup flow, no setup fee, an attractive UI, and the beginning of an API (implemented as an iCal URL).

This is a great start to centralized property management software, but they have a long way to go. To be a credible centralized property management software solution, which eliminates duplicate data entry, myvr will have to provide a solution which handles trust based accounting and online payments. I hope that the myvr team integrates existing best-of-breed services for these features instead of reinventing the wheel with propriety implementations. A solution where everything is integrated by default, but can be extended or modified through APIs, callback hooks, etc that we’ve come to expect in the most successful enterprise software solutions. This modular and best-of-breed solution will give them a distinct advantage.

Whoever builds the next generation vacation rental management solution, it can’t happen soon enough. There are lots of real businesses willing to pay for automation so we can get back to focusing on making our customers happy and growing our businesses.